Older Homeowners Least Likely To Tap Home Equity

Wed, 27 July 2022  |  housing 

Finance of America Reverse LLC (FAR), a leader in retirement solutions asked The Harris Poll to conduct a survey of 2,000 homeowners in the United States aged 18 or older to gain an understanding about home equity, its potential uses, and how it can be used to help homeowners achieve their long-term financial goals.

It was found that older homeowners are less likely to use home equity loans than those in younger generations. This is despite the fact that older homeowners are more likely to benefit from these financing options with U.S. homeowners over 62 having more than $10.6 trillion in property wealth. There are many factors that explain why 94% of Silent Generation and 89% of Baby Boomer respondents said they would not use home equity products. These include a reticence about considering the merits of home equity, lack of knowledge regarding product benefits, misaligned expectations of financial advisors recommending home equity solutions for clients.

These results highlight the need to have a better understanding of how housing wealth leverage can benefit older homeowners. This includes a deeper understanding among financial advisors. Surprisingly, 90% of respondents who have consulted a financial advisor believe they would recommend a home equity loan to them if it was in their best interests. Only 29% of respondents who have consulted a financial advisor about a home equity loan have spoken to them. This data is consistent with industry data. A recent study by The Academy of Home Equity in Financial Planning found that nearly three-quarters of financial advisors (63%) are unable to talk about home equity or don't know how to. FAR sees this gap as an opportunity for consumers and financial advisors alike to learn more about the stabilizing effects of housing wealth for 55+ homeowners, and for senior lending experts to participate in the retirement planning conversation.

FAR President Kristen Sieffert believes these findings are a prime opportunity for FAR to further leverage its education-first approach towards home equity and use a reverse mortgage in a holistic retirement strategy. Sieffert stated, "Older homeowners have an amazing opportunity in today’s housing market to tap into another vital source of financing. Given the historical home values, tapping into home equity might make sense when you consider how many older Americans live on a fixed income. FAR's partnership with the Financial Planning Association, and our consumer marketing efforts, have long supported the belief that a majority of older Americans don't consider home equity when planning for retirement. These results confirm FAR's long-held belief and advocacy. It is important that we continue to show how homeowners can incorporate this asset into their retirement plan. A reverse mortgage, a home equity product like a reverse loan, may make a difference for thousands of homeowners in the United States. It could be what they need to thrive during volatile years.

Home Equity Punch list

These survey results provide insight into how homeowners might use their home equity. They also reveal the various factors that affect homeowners' perceptions of home equity and home-equity products. Here is a summary of some high-level findings which will be tracked and analysed on an ongoing basis in order to give an overview of the U.S. home equity landscape.

  • 86% said that their home's worth has increased since they purchased it.
  • 85% respondents stated that buying a house was the best investment.
  • 84% respondents said they would like to stay in their home as long as possible.
  • Approximately 1 in 4 (28%) of respondents indicated that they would consider taking out a home equity loan.
  • Just under a third of respondents (37%) had taken out a home equity loan in the past, with the majority (55%) using an HELOC.
  • Nearly two-thirds of the 37% who took out a home equity loan used it for home improvement or debt repayment.
  • Most respondents would use the funds to improve their homes (33%), increase retirement savings (30%), or pay off debt (26%).
  • The main reasons people are unlikely to get a home equity loan include a lack in interest (42%) or not wanting to take on any more debt (16%).

Detailed Survey Results

Homeowners closest to retirement are less likely to use their home equity

Older homeowners of the Silent Generation and Baby Boomer generations are more likely than younger homeowners to tap into their home equity. However, they are less likely to actually consider it because of risk perceptions, insufficient product awareness and perceived need.

  • 55+ who expressed concern about their ability to retire comfortably are more likely to apply for a home equity loan (82%).
  • The likelihood of a homeowner taking out a loan to fund their home equity is two-fold lower for older generations than it is for younger generations (94 percent of the Silent Generation, 61% of Boomers, 39% of Gen X and 39% of Gen Z/Millennials).
  • A smaller percentage of Boomers (47%) consider home equity a part of their financial planning approach than 74% and 83% respectively of Gen X/Millennials.
  • 54% of Boomers, 65% of Silent Generation and 54% of Silent Generation said they haven't taken out a loan to fund their home equity.

The Silent Generation and Boomers were less familiar with HECMs and HELOCs than the younger generations. All respondents had low knowledge of the features of home equity loans.

  • The Silent Generation and Boomers were less familiar with HELOCs than the younger generations.
    • HELOC Familiarity - 63% of Gen Z/Millennials, 60% of Gen X; 58% Boomers: 57% Silent Gen
    • HECM Familiarity : 59% of Gen Z/Millennials, 46% of Generation X; 37% Boomers; 37% Silent Gen
  • 64% respondents were unaware or misinformed that home equity loans could be used to reduce your monthly mortgage payments.

Homeowners Should Make Preparing for Retirement a Priority

Respondents of all ages expressed strong desire to save for retirement and plan for their future. They also wanted to retire as early as possible. However, most people worry about whether or not they will achieve the lifestyle they desire in later life.

  • The top financial priorities of all respondents are: 39% want a secure future; 35% want a retirement fund; 26% want an increase in their emergency savings; 25% desire to get out of debt.
  • 68% expressed a desire for retirement and to age in places. However, more than half (53%) expressed concern about their ability to comfortably live in retirement.

The older generations expressed strong interest in retirement and in aging in place, as well as reducing their costs.

  • 76% and 72% respectively of the Silent Generation expressed an interest in retirement and aging in-place.
  • The Silent Generation (34%), Boomers (27%), and one-in-five Gen X (20%) are top priorities, compared to roughly one-in-10 Gen Z/Millennials (13%).

Home Equity Education Could be a Benefit to Both Homeowners And Financial Advisors

Although financial advisors are trusted resources for information about finances and retirement planning, only a small number of them include home equity in their planning conversations with clients. Financial advisors and clients may have misaligned expectations or little knowledge about home equity products. This can complicate these conversations. Financial advisors may not be licensed to sell home-equity products. This could be because other professionals might be required to make informed recommendations on how to use home equity. Homeowners should seek out information and resources on how to manage their home equity. If they are interested, they should consult a licensed loan officer.

  • 9 out of 10 respondents believe their financial advisor will discuss a home equity loan with them if it's in their client’s best interests.
  • Only 29% of those surveyed had ever spoken to a financial advisor about a home equity loans.

Respondents' desire to reduce and manage their debt and to learn more about home equity could make it a good opportunity to increase awareness and provide financial advisors with additional information to help clients achieve their goals.

  • 67% said they would like to hear from a financial advisor about how to manage their debts and liabilities.
  • 43% would like to know more about a home equity loan.

Jason Rudman, Chief Customer Officer of Finance of America Companies said that homeowners have more equity than ever before. Finance of America offers a wide range of home equity and home financing options that are flexible and affordable. This includes home improvement loans, reverse and hybrid retirement mortgages, and other innovative products. We are proud to offer such a wide range of products and to provide strategic guidance to our customers about how to use their home equity throughout their financial journey.

For a more in-depth look at the Home Equity Punch List, please visit http://exploreretirement.far.com/homeequitypunchlist to access additional data and insights from the survey.

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